Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 4%, and the market's average return was 11%. Performance is measured using an index model regression on excess returns. Stock A Stock B 18 + 1.2(rM - rf) 28 + 0.8(IM - re) Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns 0.683 0.49 12.1% 20.98 23.48 28.58 a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) Answer is complete but not entirely correct. Stock A Stock B i. Alpha 1.0000 % 2.0000 il. Information ratio 0.0826 0.0957 Sharpe ratio 0.5042 0.3228 iv. Treynor measure 9.8333 % 11.5000

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 4%, and the market's average return was 11%. Performance is measured using an index model regression on excess returns. Stock A Stock B 18 + 1.2(rM - rf) 28 + 0.8(IM - re) Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns 0.683 0.49 12.1% 20.98 23.48 28.58 a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) Answer is complete but not entirely correct. Stock A Stock B i. Alpha 1.0000 % 2.0000 il. Information ratio 0.0826 0.0957 Sharpe ratio 0.5042 0.3228 iv. Treynor measure 9.8333 % 11.5000

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Q3. Find the Expected Return, Variance, and Standard Deviation for the Stock Returns 1 and 2. Also, you are requested to find the Covariance and Coefficient of Variation with the following information. Probability Stock - 1 Stock - 2 42% 09% 01% 0.22 04% 39% 0.05 38% 47% 31% 41% 18%
pm.2
From the following informatongiven below , calculate and differentiate between a. Arithmetic Mean, b. Geometric Mean and c. Standard Deviation Partiulard stock A stock B Year 1 13% 19% Year 2 15% 23% Year 3 12% 20% Year 4 11% 18%
Following is information for the required returns and standard deviations of returns for A, B, and C. The correlation coefficients for each pair also are shown below in a matrix. Which is the portfolio you will recommend AB, AC, or BC, and why? A B C Required Rate of return 7% 10% 20% Standard Deviation 33% 54% 90% Coefficient A,B 0.16 Coefficient A,C 0.19 Coefficient B,C 0.17
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 28 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 38 percent. The correlation between the two stocks is -0.1. What is the weight of stock D in the minimum variance portfolio?
The following table has expected returns and variance-covariance of five stocks. The T-Bill rate is 3. Variance-Covariance Returns V F GM WMT Y V 27.226 588.659 -275.078 -319.948 -36.805 -93.170 F 11.653 -275.078 5716.621 22.772 56.588 52.187 GM 4.633 -319.948 22.772 729.510 569.730 -258.506 WMT 12.905 -36.805 56.588 569.730 932.361 367.376 Y 6.908 -93.170 52.187 -258.506 367.376 1466.966 T-Bill 3.000 questions a) determine the Tangency portfolio weights and calculate its expected return, standard deviation and Sharpe Ratio. Assume short sales are allowed. Write the equation of risk-return relations. b) determine the Tangency portfolio and calculate its expected return, standard deviation and Sharpe Ratio assuming…
An asset has normally-distributed returns, with mean of 10.6% and standard deviation of 14.8%. What is the 2% VaR (value at risk) return? Enter answer in percents.
Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio? (4 marks) A B Expected return 12.5% 18.5% Standard Deviation of return 15% 20% Correlation of coefficient (p) 0.4
The following are estimates for a stock A. Stock Expected ret. beta firm-specific variance, or Var(e) A 0.15 1.3 0.34 The market index has a standard deviation of 0.22, and the risk-free rate is 0.03 What percentage of stock A's total risk is attributable to systematic risk (or market risk)? Here consider variance as the risk measure. Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321.
If beta of Stock A with market is 0.72 and and the market variance is 225 , the covariance between A and B is 202.5, beta of stock B with market is a. 1.10 b. 0.81 c. 1.20 d. 1.25
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 3.6 % + 1.20RM + eA RB = -1.6 % +1.50RM + eg OM = 16%; R-squareA = 0.25; R-squareg = 0.15 Break down the variance of each stock to the systematic and firm-specific components. (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.) Risk for A Risk for B Systematic Firm-specific
2. Let random variables A and B be the monthly returns of stocks A and B, respectively. Let C be the monthly returns of Crude Oil Index (WTI). Suppose p(A,C) = correlation between A and C= 0.50 p(B,C) = correlation between B and C= -0.45 • p(A,B) = correlation between A and B = -0.15 o(A) = standard deviation of A = 0.45 o(B) = standard deviation of B = 0.75 o(C) = standard deviation of C= 0.55 Moreover, suppose you decided to form a portfolio D, which invests 60% in stock A and 40% in stock B. Let random variable D be the monthly returns of portfolio D. a. b. C. Y : Determine the covariances between (i.) A and C, (ii.) B and C, and, (iii.) A and B. Compute for the covariance between C and D. Compute for the expected standard deviation of D.

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